Wells Fargo's 2nd quarter profit surpasses estimates as interest rates rise and bank strikes deal to sell its insurance services business
Wells Fargo said its profit edged higher in the second quarter as the bank got a boost from rising interest rates and the planned sale of its insurance service business.
The San Francisco-based bank said its profit grew 5 percent to $5.8 billion, or $1.07 per share. That was more than the $1.01 per share expected by analysts, according to FactSet.
The Federal Reserve has raised interest rates three times since December, which lets banks charge more money for lending, and Wells Fargo said its net interest income climbed 6 percent to $12.5 billion.
Wells Fargo, JPMorgan and Citigroup all disclosed their second-quarter results Friday, and said they collected more money on interest because of rising interest rates, which let the banks charge more money for lending. The Federal Reserve has raised interest rates three times since December.
However, JPMorgan Chase said it won't make as much income from interest as it previously expected. That helped send shares of all three companies lower. Wells Fargo fell 73 cents, or 1.3 percent, to $54.87.
The company reported a gain of 4 cents per share from the sale of the insurance business to USI Insurance Services, which Wells Fargo announced in late June. On Friday Wells Fargo said it will sell its shareholder services business to Equiniti Group for $227 million.
Wells Fargo is the largest U.S. mortgage lender, and it said originations of mortgage loans dipped to $56 billion from $63 billion one year ago. But Wells Fargo made fewer auto loans because it tightened its lending criteria.
Wells Fargo reported $22.17 billion in revenue, down slightly from last year. Analysts surveyed expected $22.47 billion.
The bank said its checking account customers increased 0.7 percent. The bank is still dealing with the fallout from a sales practices scandal that became public in September.
Regulators fined Wells Fargo $185 million in September for opening more than 2 million accounts fraudulently as employees tried to meet aggressive sales goals. Afterward, CEO John Stumpf stepped down and the head of the consumer banking division, Carrie Tolstedt, moved up her retirement.
Both were ordered to forfeit stock awards, and the bank clawed back $75 million it paid to Stumpf and Tolstedt. Wells Fargo also scrapped its sales goals and announced new compensation standards.
On Saturday Wells Fargo received preliminary approval to pay out $142 million to customers affected by the scandal, but state and federal authorities are still investigating. Fed Chair Janet Yellen told Congress this week that the Fed needs to investigate to find the root causes of Wells Fargo's problems and that the Fed is prepared to take action in response.
Wells Fargo stock is down slightly this year, while the Standard & Poor's 500 index has risen almost 10 percent. Like other banks, Wells Fargo's stock surged since Donald Trump was elected president in November as investors hoped for stronger economic growth and higher interest rates along with looser regulations.
Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on WFC at https://www.zacks.com/ap/WFC
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